Ten Loan Ideas for 2013

They’ll come in especially handy if we stay stuck in this low-rate environment.

Economists have predicted credit union loan growth to be about 5% in 2013.

Given my wizard-like math skills, I’ve calculated that with 5% loan growth and 4.8% deposit growth, we should return to our normal loan-to-share ratios just about the time Charlie Sheen’s career gets back on track.

Consider these two points regarding the forecast:

1. There’s a “loan” and then there’s a “financial agreement,” whereby the borrower pays something called “interest” (this appears to be optional according to some of our auto loan competitors). Balances will grow, but at what rate?

2. Loan growth isn’t universally shared. In fact, there seems to be a growing disparity between those who have growth and those who don’t. Many credit unions struggle with anemic or even negative growth, kind of like the Republican Party.

My credit union has been able to grow loans, averaging about 10% during the past two years, albeit after much trial and error. The remnants of loan promotions, such as our unsuccessful “Milli Vanilli” endorsement, litter our marketing group’s offices.

The efforts that worked helped us identify these top 10 facets of a successful program:

1. Segment, segment, segment. Take any market and slice it into what people want. Overserve one of those segments. We took on real estate, for example, with a series of “pay off that mortgage” programs designed to capture folks with less than 10 years left
to retirement.

2. Know cycles. Trying to sell a home equity line of credit (HELOC) in the dead of winter is like trying to sell ice cubes to Eskimos. Loans—unlike kids’ soccer—have seasons, and HELOCs do well in the spring.

3. Know your margin. I’ve seen folks with indirect portfolios setting the rate at 1.75% for 84 months with a 2% dealer fee, and they’re thrilled with the result. Personally, I think a math class is in order.

Yes, math can be a bit complicated, but that’s why we have such things as “accountants” and “Excel.”

4. Have a beginning and an end to your promotion. Like a teenager, consumers move only when they need to.

5. Beware the allure of subprime. Yes, it does offer better return but it does so at a higher risk and a higher variability. What is the margin, given expected prepayments and losses? (Email me if you need help.) And for those relying on insurance as protection, does a company called AIG ring a bell?

6. Consult. Know your members. If they’ve had past difficulties that are now behind them, it might be a good financial decision to stretch things a bit. But your examiner will crucify you if even one of them goes bad.

7. Don’t let thin files scare you. Yes, there is risk, but new borrowers normally follow the 80/20 rule (80% will do just fine, while the remaining 20% will default faster than a Trump casino).

8. Concentrate marketing efforts. There are more ways to advertise today than ever before. Which ones work will depend on member demographics and whether or not your CEO is a “cheapskate” or merely “frugal.” A large, single buy of radio, for example, will get you more air time than spreading your marketing dollars between multiple media channels.

9. Anticipate loan opportunities. My favorite promotion is sending a letter to parents of new teen drivers offering them a loan so the parents can get new cars and give their old clunkers to the kids.

10. Decide quickly. Drawn-out loan decisions get shopped—and there are many buyers out there.

If the economists are correct and we’re stuck in this low-rate environment, lending will be the only way to maintain margins. Be sure to do your homework and be wary of promises of high-yield loans with little or no risk.